Wednesday, May 5, 2010

Scandanvian countries are not socialist

We've all heard people on the left claim that America should be more like the Scandinavian countries, with high tax rates, little inequality and as a supposed result, a high standard of living. Sometimes Scandinavian countries are used as positive examples of socialism.

"...was about as remote from socialism as imaginable. The core notion of, atleast traditional socialism is that working people have to be in control of production and communities have to be in control of their own lives."

This sounds a little like the No True Scotsman fallacy and a lot like the Moving Goalpost. Socialist intellectuals, the kind that volunteered to fight in the Spanish Civil War, fawned over the Soviet Union. George Orwell was a notable exception - a socialist who was critical the communist regimes of his day - and Christopher Hitchens argues that Orwell's condemnation of Stalin and other socialist experiments earned him the hatred of sincere socialist groups.

But it didn't work. Even with the enormous sacrifice of all standards of human rights, communist countries did not outproduce capitalist nations. Paul Krugman wrote that their success was all an illusion from the start:

"Most of the speculation about the superiority of the communist system including the popular view that Western economics could painlessly accelerate their own growth by borrowing some aspects of that system - was off base. Rapid Soviet economic growth was based entirely on one attribute: the willingness to save, to sacrifice current consumption for the sake of future production. The communist example offered no hint of a free lunch."

While investing all resources into capital investments and neglecting day-to-day spending works at first, Krugman said this system can not continue to last long. You could make a five-foot high column out of pressed beach sand, and you may find a way to build faster than a stone mason or a carpenter at first, but you will not be able to build indefinitely high. You will have the same end result that the Soviet Union and the "Asian Miracles" experienced.But back to the chilly nations with cross-motif flags.

Socialists are taking back what they said about the wonders of Russia and are now disqualifying the USSR because the state owned all of the businesses - not the people. I suppose there must be a big battle between these new socialists and progressives who defend government encroachment by trumpeting "the government is us, the people!"

If that's such an important criterion, you can not brand Scandinavian states as socialist because there is no collective ownership of businesses there either. That's because Scandinavian nations are welfare states with glorious free markets. That is the source of their wealth. Although they do have high taxes, those tax rates have fallen substantially since 1980 when almost all countries in the world moved toward economic liberalism - free markets. The Scandinavian nations are no exception, as Scott Sumner illustrates:

"Between 1980 and 2005 only New Zealand moved toward free markets more rapidly than Denmark. My interpretation is as follows. Free market reforms threaten to erode rents earned by various special interest groups. Thus after 1980 these reforms were more likely to occur in countries where the civic culture is more oriented toward the common good. (In other words if you hear that culture is “tribal,” or that “family comes first,” it’s economy is likely to have statist economic policies.)"

Sumber suggests the ability for a nation to have a welfare state without becoming a nation of lazy playboys, and eventually running out of money, rests on its culture. If the culture promotes hard work and discourages collecting government handouts, it can survive. He cites a study on civic virtue that shows Danes are one of the least likely people to say they'd accept government benefits they are not entitled too.

I add to that that the Scandinavian countries have ghastly limits on immigration simply to keep people from showing up to collect public assistance. This protects the welfare state from filling up with moochers, but it keeps out sincere immigrants who want to work and benefiting the economy.

Members of the right who wish to call Obama's welfare state policies "socialist" may wish to calm down their rhetoric. Someone with that definition of socialism would be forced to include the Scandinavian countries, and that would imply that socialism works.

How free are Scandinavian economics?

Denmark leads the world in the Forbes magazine business climate ranking. The top ten are Denmark, Ireland, Finland, the United States, the United Kingdom, Sweden, Canada, Singapore, Hong Kong and Estonia.

The Heritage Foundation has a similar ranking for economic freedom. Denmark comes in 9th, Finland 17th, Iceland 18th, Sweden 21st and Norway 37th out of 179 countries.

The Economic Freedom Network placed Denmark in 12th, Finland 16th, Iceland and Norway tied for 24th and Sweden came in 40th out of 141 countries.

Now let's compare that to the Corruption Perceptions Index, where countries are ranked on how little entrusted power is used for private gains.

Other chart-toppers on the corruption index include New Zealand, Singapore, Canada, Hong Kong and the United States - all of them were top scorers on the economic freedom rankings. It's clear that there is a strong correlation to free markets - where the government has little control over the business world and a lack of politicians and bureaucrats using their position for financial gain.

It could be simply because they don't have enough power to abuse. It's very foolish for a company to bribe a bureaucrat if that bureaucrat can't do anything to help them.

The key to Scandinavian prosperity is free markets. It is not the child of a generous welfare state. Instead, free markets are able to provide a lot of wealth in culture of people who don't seek government as a source of wealth, and that's why the government is able to run a generous welfare state. Time will tell if that welfare state will corrupt the Scandinavian culture.

For now, what works in Scandinavia must be seen as a packaged deal. While they did lower their tax rates in the last few decades, they are still much higher than ours. It would be a mistake to assume our prosperity would go unpunished if we introduced higher tax rates without increasing economic freedom, magically eliminating the sense of entitlement from our culture, making standard of living compromises and imposing strict immigration limits.

5 comments:

How do you respond to the leftist argument that free-markets enable undesirable behavior by industries such as "predatory lending" or the neglect of ecological disasters such as the Union Carbide leak in Bhopal.

The behavior I'm particularly interested in hearing your response to is manufactured demand. Most economic models act under the assumption that the consumer is logical - but I think you are aware of just how illogical consumers can be.

For example: bottled water. Granted, there are some places bottled water is handy (for pregnant women, oh.... and Wrightsville Beach, NC - yuck!) but generally, in America, tap water is good and healthy and extremely inexpensive. It's abundant, every home has running water, most public places have it too - and carrying a reusable bottle (or even waiting *shock*) is hardly an inconvenience. Also, distributors like Aquafina (Pepsi) have explicitly admitted their water is just filtered tap water.

Sales of bottled water didn't skyrocket until massive marketing campaigns (propaganda?) convinced people that bottled water was a good idea - despite being wasteful and relatively quite expensive.

Credit cards are another example. I would argue credit cards are a significantly better idea than bottled water - and certainly have their uses. But obviously, some people just shouldn't have them. Credit card debt can be devastating. If they were logical and well informed, I assume they wouldn't demand the service - or maybe demand less, but there are obviously instances of people borrowing more than they can handle.

People who fail to pay their bill on time and suffer late fees are profitable. In a free-market, what's to stop a credit card company from spending millions on targeting their marketing towards profitable consumers in the absence of education (generally public) or consumer protection mechanisms?

Individualism and self-reliance (qualities highly valued by the right) are great, but what's an individual to do when millions (billions?) of dollars are spent to convince them to act a certain way that benefits industry but, arguable, is destructive to them. (Think: consuming expensive bottled water, eating fast food and accumulating excessive debt.)

If young conservative doesn't want to call Scandinavian welfare states "socialist" he's at liberty not to. Obviously, if socialist and communist are equated, he is correct. But state welfarism is a form of socialism, and the socio-economic policies of Skandinavian countries are a mixture of what works best both for the security of citizens and the vitality of markets. The evidence speaks for itself.

The onus is on our hip conservative to demonstrate why higher taxes are bad, given the prosperity and happiness levels of, say, the average Dane compared to the average American. Such an argument can only be ideological.